Fidelity Deposit Co. of Maryland v. Wiseman

This suit was brought by S. Wiseman against Mary F. Swain and the Fidelity Deposit Company of Maryland. The object of the suit was to recover upon a judgment rendered against W.J. Swain, in his lifetime, for $4477.13, in the District Court of Collin County, against Mrs. Swain as survivor of the community estate of herself and her deceased husband, W.J. Swain, and against her codefendant as surety upon her bond given under the statute for the administration of that estate.

The facts as developed by the testimony upon the trial were as follows: William J. Swain inaugurated the enterprise of establishing and promoting the Houston Fire Marine Insurance Company and became president of the company. The charter was obtained and a very small portion of the stock was subscribed for. Thereupon Swain repaired to New York and, upon his return, reported that he had sold to John C. Preston 1080 shares of stock in the company and had received therefor bonds of the city of Austin of the par value of $135,000. These purported bonds were brought back to Houston and turned over to the insurance company. Mrs. Swain, upon the death of her husband, applied to the County Court of Harris County for the right to administer the community estate of herself and her deceased husband, and her codefendant, the Fidelity Deposit Company of Maryland, signed her bond as such survivor. The inventory returned by her showed as the property of the estate, as follows:

Cash in bank .........................................$ 426.00 10 1/2 shares stock H.F. M.I. Co. .................. 1,312.50 30 shares stock H.F. M.I. Co. .................. 3,750.00 8 shares stock H.F. M.I. Co., 20 percent paid . 200.00 1080 shares stock H.F. M.I. Co. (transferred to him by J.C. Preston) ............................. 135,000.00

The property was appraised by appraisers appointed by the court at the sums respectively set opposite the property on the foregoing list. Whereupon Mrs. Swain gave bond for the administration of the estate in the sum of $145,000 (being the value of the community estate), with the Fidelity Deposit Company of Maryland as her surety.

Upon the trial of the cause the bonds which were given for the stock were indisputably proved to be forgeries; and the evidence leaves the gravest doubt as to whether any such person as John C. Preston ever existed. But after the death of W.J. Swain there was found among his papers a purported transfer of the J.C. Preston stock, signed and acknowledged by the latter, to Swain. After her qualification to administer the community estate of herself and her deceased husband, Mrs. Swain demanded and received new stock in the company in lieu of the old 1080 shares purported to have been bought of Preston, believing the shares to be genuine. She subsequently sold 1120 shares of the stock of the company for $75,000 and received the consideration except five thousand and some hundred dollars. She testified that when she received the money for the stock she distributed one-half of it to the heirs of the estate except one-sixth, which was payable to a minor heir, whose guardian did not receive the money.

When one has been defrauded of property, as in this case, he may sue for the property itself, or in case it has been sold to an innocent purchaser, he may recover the proceeds. Whether of the property or of its proceeds, the holder is considered a constructive trustee. Hence the beneficiary, that is, the party defrauded is entitled to the fund; and no one else until he is satisfied is entitled to any part of it. In this case W.J. Swain as president of the insurance company either willingly or by culpable negligence by which the forged bonds were ostensibly received for the benefit of the company made the transaction, but whether willingly or unintentionally he would be in either case responsible to make good the default. Mrs. Swain as survivor of the community estate having before the discovery of the fraud received new shares of the company and having sold them for cash the purchaser took a good title to the shares and only the amount received by her for them remains subject to make good to the insurance company what it lost in the transaction.

We have failed to find any sufficient answer to the question, how is the defrauded party to be satisfied if the fund, as in this case, obviously not enough for the purpose, is payable upon the general debts of the party committing the fraud? It seems to us that to permit this is to allow a fund which belongs to one person to be appropriated to the payment of the debts of another.

The authorities on this question are not uniform. Some hold that because the executor or administrator has secured the money and has treated it as funds belonging to the estate he is estopped to deny the capacity in which he held it; and this will do where there is no other person who has a better claim to the fund. Such is the case of Portis v. Cummings, 21 Tex. 266, where the parties having recovered a sum of money belonging to their ward were not permitted to deny as between themselves and the ward that they had so received it. On the other hand in the case of the American Sugar Refining Co. v. Fancher, 145 N.Y. 552, a vendor of personal property sold to the vendee upon false representations as to the solvency of the firm — the vendees having sold a part of the goods in due course of trade, and having assigned the remainder in an assignment for the benefit of creditors, it was held that the defrauded vendor had the right to recover of the assignee the proceeds of the sale of the goods assigned. Let us suppose then for the sake of argument, that the vendees instead of assigning for the benefit of creditors, had died, could their administrators claim these goods or their proceeds for distribution among their general creditors? We think not. In McPike v. McPike, 111 Mo., 216, the administrator in Missouri collected rent upon a mill in Alton, Illinois, and also sold the mill, the court held that since the law of Illinois was not proved, it would be presumed that the common law was in force there and that under that law the administrator had nothing to do with real estate, and decided that he was not chargeable as administrator with the rents or the proceeds of the mill.

It appears from the statement of facts that the defendants the Fidelity Company offered to prove that the Houston Fire Marine Insurance Company had filed a suit against Mary F. Swain and the surety upon her bond upon the theory that John C. Preston was a mythical person, and that Swain by using his name in subscribing for the stock bound himself, and that the insurance company now sues her and the surety upon her bond for the entire proceeds of the sale of the stock. The court received the evidence announcing that he would admit it provided counsel should show any authority for its admission, but no bill of exception was filed either for its acceptance or rejection. From all this we can see that the insurance company had a suit against Mrs. Swain and the surety on her bond for the entire proceeds of the sale of the stock.

Accordingly the judgment of the Court of Civil Appeals is reversed and the judgment of the District Court affirmed.

ON MOTION FOR REHEARING. Upon consideration of the motion for a rehearing in this case, we are convinced that we erred in rendering the judgment. We know from the record that the transcript of the suit of the Insurance Co. v. Mary F. Swain was offered in evidence, but what it contained we do not know. It occurred to us in disposing of the case, that the suit must have been to recover of Mrs. Swain as survivor of the community for the shares of stock, which Swain has used and appropriated, when they had not been paid for; and this would have taken the entire fund as compensation. But it now appears that the suit may have been for stock subscribed for and for which no payment had been made and that the suit was that of a simple creditor for a debt created by Swain. Therefore we think the judgment of the Court of Civil Appeals should be reversed and the cause remanded; and it is accordingly so ordered.